Pricing strategies new.ppt

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Pricing strategies

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�Setting prices to achieve the firm’s

objectives requires the selection of

specific pricing strategy or a

combination of strategies.

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�The 11 pricing

Strategies

shown into four categories

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Differential

pricing

Competitiv

e

pricing

Product-

line

pricing

Psychological

pricing

Second-

market

discounting

Penetration

pricing

bundling Odd-even

pricing

Periodic

discounting

Price

signalling

Premium

pricing

Customary

pricing

Going –rate

pricing

Partitioned

pricing

One-sided

claims

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Differential pricing

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�Differential pricing involves selling the same product to different buyers

under a variety of prices.

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�this is the practice of charging

different buyers different prices for

the same quantity & quality of

products or services.

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� Differential pricing

works because

1. the market is

heterogeneous

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2. or more simply

�Differences in

reactions to price exist

among consumers or

consumer segments in

the market.

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�The ability to engage in differential

pricing has been facilitated greatly by

the ever growing number of online

auction sites.

Such as

�priceline.com

�shop bots that search the web for low

prices.

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Second –market

discounting

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�The most common from of

differential pricing second –

market discounting

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�Occurs when

different prices

are charged in

different market segments.

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Second-market discounting

is useful when:

1. the firm has excess capacity and

different market segments exist.

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�Generic brands and some foreign

markets often provide opportunities for

second –market discounting.

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if a firm can sell its product cost-

effectively in a foreign market.

it may be profitable to export at a price

even below local prices.

the exporting firm must have excess

production capacity (so no new fixed

costs are required)

Example

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Second market discounting also occurs :

2. When the company sells a portion of

its output as generic brands at lower

prices to price –sensitive segments

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Periodic discounting

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�Periodic discounting enables a firm to take advantage of the presence of consumer segments that differ in

price sensitivity.

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This approach include

�price skimming where an initial

high price is determined for new

products to skim the market.

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Competitive pricing

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Competitive pricing strategies

based on the firm’s position in

relation to its competition

include:

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�penetration pricing

�Limit pricing

�Price signalling

�Going-rate pricing.

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Penetration pricing

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�Penetration pricing

Calls for a low initial price to generate sales volume .

it is often used when the marketer wants to maximize sales growth or

market share.

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Penetration pricing

may be particularly

beneficial

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i. when there are a significant number of

price-sensitive consumers in the

market

(demand is price-elastic)

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ii. Or the firm fears early entry of a

competitor if prices are set high &

margins appear attractive.

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Limit pricing

•penetration pricing

•Limit pricing

•Price signalling

•Going-rate pricing.

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�Limit pricing

Another term for low penetration pricing

also entails setting prices to discourage

new competition.

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�In situations in

which competitive

reaction is unlikely

Firms may engage in

price skimming

described earlier

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Price signalling

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�Price signalling

�Puts high

prices on low-

quality

products.

Unethical

behaviour

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• Firms can purchase it successfully if several condition are satisfied:

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I. There must be a

segment of buyers

who believe firms

spend more to

provide higher

quality

II. Information on the

level of quality

should be hard for

buyers to obtain.

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Going-rate pricing

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�Going-rate pricing

• This approach is used when products compete on the basis of attributes or benefits other than

price.

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�Going-rate pricing has the additional

advantage of lessening the threat of

aggressive price wars –which may be

unprofitable to all competitors

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�Product-line pricing

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Firms often offer a line of multiple

versions of the same product

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• Marketers must be

sensitive to price changes

in the product line.

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• A price change in one product can detract from sales of other products in the line because they are often

substitutes for one another

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bundling

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�Bundling

• Bundling is marketing two or more products or services in a single

package .

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The practice is seen frequently

in the marketing of :

�Hotel services

�Restaurant meals

�Computer systems

�Stereo systems

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Definitions:

�Bundling: sale of two or more

separate products (&or service)

in one package

☺Such as opera tickets

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�Price bundling :the sale of two more

separate products as a package at a

discount, without any integration of the

products

☺Variety pack of cereals

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�Product bundling the integration & sale of two or more separate product at any

price

☺Sound systems

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�Pure bundling :a strategy in which a firm sells only the bundle and not

(all) the products separately

☺IBM’s bundling of tabulating machines & cards

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�Mixed bundling a strategy in which a firm sells both the bundle & all the

products separately

☺Telecom bundles

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�Premium pricing

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�Premium pricing

�Premium pricing sets higher

(premium) prices on more deluxe

product versions.

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When a firms offers several

alternative models ,it often use a

premium pricing strategy

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Partitioned pricing

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�Partitioned pricing

�Many firms divide the prices they charge into parts in lieu of charging

a single price.

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�These part prices are often termed

the base price and the surcharge.

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• Example:

Sony telephone

(from a mail catalogue)

�$69.95

�Plus $12.95 for shipping & handling.

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Psychological pricing

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Psychological pricing

�Psychological pricing recognize

that buyer perceptions & beliefs

affect their price evaluations.

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Prestige or premium pricing & comparing

competitors ‘ price with a firm's lower sale

price deal with the psychological aspects of

consumer reactions to price

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• ODD-even pricing

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�ODD-even pricing

• Present prices at values just

below an even amount ,a

common practice.

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• Example: instead of pricing

content lenses at $200

�The price is set at $199.95

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�Customary pricing

• Customary price beliefs represent

consumers’ strongly held

expectations.

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pricing strategies that set customary prices typically modify the quality features or services of a product

without adjusting the price.

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�Example :

�new versions of & joy hand

washing dish detergents

�Offered by P&G

�Smaller bottles at the same price

�The taller containers are

designed to look bigger and pour

faster adding up an effective 12%

price increase.

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One –sided price claims

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One-sided price claims

• Concerns arise regarding the

implications of one sided price claims

in which superiority in price for one

attribute or offering is made.

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Geographic pricing

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�Geographic pricing

• Companies with geographically dispersed customers sometimes adjust prices because of costs

resulting from distance.

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Geographic pricing

FOB origin pricing

Zone pricing

Freight absorption pricing

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FOB origin pricing

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�One of the more commonly used

method is FOB origin pricing.

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FOB stands for

Free on board

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• Meaning:

the goods are placed on a carrier (truck-train-barge) and shipped to

the customer

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FOB pricing requires:

customers to pay the unit cost of the goods plus ship pricing costs which

differ with location or market.

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Uniform delivered price

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�Uniform delivered price

• An opposite strategy is to charge the

same price & transportation cost to all

customers.

• using a uniform delivered price ,the

company charges each customer an

average freight amount.

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Zone pricing

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Zone pricing

• zone pricing is an approach

between FOB and uniform

delivered pricing.

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• Customers within an area are charged a

common price .more distant zones or

areas are charged higher freight

amounts.

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Freight absorption pricing

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�Freight absorption pricing

• Is another form of geographic pricing.

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Here the seller absorbs fright costs –offers free or reduced costs of

delivery to attract more business .

• This practice occurs when competition among sellers is heavy.